Nicollet Mall Economic Impact Study

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An economic impact study on the proposed Nicollet Mall redesign

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  • ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

    Prepared for the City of MinneapolisMarch, 2014

    Redevelopment Economics, Finance and Strategy

    2288 University Ave WestSaint Paul, MN 55114

    ph) 651.645.4644www.donjek.com

  • INTRODUCTIONNicollet Mall is a twelve-block pedestrian and transit mall that since its 1968 construction, has

    served as a prominent symbol of Minnesota and its largest city, Minneapolis. During a period

    of stress on downtown retail and commercial districts, public and private investment in Nicollet

    Mall and adjacent structures helped to sustain downtown as a bulwark of the regional and state

    economy. Today, national market trends in housing and office are shifting, and remarkable

    growth in downtown Minneapolis presents a clear example of this change. Building on the

    public-private partnership model that put the mall in place in 1968, the City of Minneapolis,

    Minneapolis Downtown Council, and other private partners are collaborating to propose a $50

    million reconstruction of Nicollet Mall.

    The City has commissioned a targeted economic impact analysis to evaluate existing market

    trends and quantify certain economic effects of the reconstruction project. This report summarizes

    research and analysis conducted on an area comprised of over 2,000 parcels across 47 city

    blocks.

    HISTORY AND PLANS FOR REINVENTIONNicollet Avenues importance as a commercial spine in

    Minneapolis dates to the 19th century, when value of the street

    frontage supported early development of retailers such as

    Daytons, Donaldsons and Powers. By the mid-1950s, many

    residents of the region were choosing to leave previously

    established neighborhoods for suburban areas, where more

    dispersed housing was coupled with shopping centers easily

    accessible by car. In response, civic and business leaders in

    Minneapolis proposed and in 1968 constructed the nations

    first transit mall extending from Washington Avenue to 12th

    Street, to strengthen appeal both for retail and downtown investment.

    Over nearly half a century, Nicollet Mall presented a model that inspired many other American

    cities to introduce transit malls into their downtown landscape, including comparable cities

    of Denver, Chicago, Portland, and Madison. Several of these systems have, over time, been

    dismantled and returned to general use by cars, a concept considered and rejected in the past

    in Minneapolis. Nicollet spans across the densest concentration of jobs and market value in the

    state. Its reconstruction and elevation as a must-see destination is presented as a top priority

    in the Intersections Downtown 2025 Plan developed by the Minneapolis Downtown Council,

    and adopted by public and private stakeholders.

    In 2013, the City of Minneapolis coordinated a Nicollet Mall design competition to invite p

    roposals for the streets future. The selected proposal, submitted by James Corner Field

    Operations, has been adopted by the City and its private sector partners as the framework for

    investment and reconstruction of Nicollet Mall.

    2 ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

  • NICOLLET IN CONTEXT Downtown Minneapolis, surrounding Nicollet as a central north-south connection,

    maintained more stability as a center of trade and employment through the

    mid- to late-20th century than many similar central business districts. Recent years

    have brought a significant and visible increase in investment, primarily by private

    parties in residential and office development, and firms moving to or expanding

    in downtown Minneapolis. Over 130,000 people work in downtown Minneapolis

    each day, reflecting both stable small firm activity and continued investment in

    downtown employment locations by larger employers such as Xcel Energy, US

    Bancorp, Ameriprise, Wells Fargo, and Target. Downtown, as a center for

    headquarters within a region where 19 Fortune 500 firms are based, has benefited

    from investment and activity required to provide research and development,

    professional services, marketing and design, both to larger firms based in the

    region and to larger external markets.

    Goals established by the Downtown Council also suggest an opportunity to

    maximize Nicollet Mall as a destination and amenity for residents. The Council is

    targeting a doubling of downtown population to 70,000 residents, addition of

    three million square feet of office space and 200,000 square feet of retail, and

    introduction of 1,100 hotel rooms into the downtown market. The need to

    leverage Nicollet Mall as a public square, providing public space for this range of

    users, is expected to grow with the added concentration of people downtown.

    PROPOSED RECONSTRUCTIONThe City of Minneapolis and the Minneapolis Downtown Council propose to take advantage

    of the need to reconstruct Nicollet Mall, by drawing on forward-thinking design that reflects

    a range of current and intended uses. The proposal, developed by design firm James Corner

    Field Operations, is intended to emphasize the close proximity of the Mississippi River, the core

    of the downtown business district, and the Loring Park area. More specifically, the plan focuses

    on three sections to propose changes to Nicollet Mall:

    Build a Mississippi Woods segment along the northern section of Nicollet between

    Washington Avenue and 4th Street, to provide public space for new development

    that includes a 26-story apartment tower, recently announced development of the

    Ritz Block, expected expansion of Xcel headquarters, and the Minneapolis Central

    Library. Adding trees and gardens, performance space and lighting, and maintaining

    street right of way for bicycles and buses is designed to support projected residential

    and office growth in this zone of Nicollet.

    Prioritize the heavily used middle segment between 6th and 8th Streets by establishing

    the Nicollet Island area, to support the core of the downtown Minneapolis employment

    concentration. Reconstruction in this segment is proposed to include wide stairways

    facing each other and connecting the skyway level and street level, with intermediate

    space used for the farmers market and seasonal events and amenities.

    ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION 3

  • Highlight Nicollets arts and entertainment focus, and point toward Loring Park, by

    creating the Loring Woods segment south of 12th Street. This section is proposed to

    include a wide variety of tree types and sizes, to provide a destination for visitors,

    residents and workers downtown.

    The City and the Minneapolis Downtown Council have together proposed financing the $50

    million reconstruction project with public and private sources:

    Assessments are expected to be used to raise capital from benefiting owners of property on

    and near Nicollet Mall.

    4 ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

  • ECONOMIC BENEFITS OF NICOLLET RECONSTRUCTIONThe reconstruction of Nicollet Mall has been designed and proposed as an investment in a next

    era of use and success for downtown Minneapolis. Over the last 45 years, Nicollet Mall has

    provided a unique addition to the central business districts network as downtowns only transit

    and pedestrian mall. Following a protracted public dialogue about the transition of Nicollet to

    transit mall, the new malls transformation prompted $50 million of redevelopment in the

    following three years.

    The current proposal is to reconstruct Nicollet Mall, rather than transition from typical street to

    transit and pedestrian mall. The opportunity is also different: The reconstruction is proposed

    to support and coincide with a marked increase in the development appetite for residences

    and office uses downtown, particularly along Nicollet. As a result, economic benefits will be

    directly produced by, or in other cases supported by, the reconstruction of Nicollet Mall. These

    benefits are produced primarily in six interconnected ways that merit individual discussion.

    Stimulating statewide business activity and employment. Initial economic impact of the Nicollet Mall reconstruction will occur during design and construction of the project. The budgeted

    $50 million of spending will flow through the economy, creating additional economic activity

    and jobs in the Minneapolis-Saint Paul region and statewide. These impacts will occur in the

    construction sector and in other sectors, as dollars are spent and cycle through the regional

    economy. The estimated economic consequence of the $50 million reconstruction is $105.5

    million in additional spending within Minnesota, and creation of 860 full-time equivalent jobs (FTEs).

    Expanding visitorship. Convention and meeting visitors attending events in downtown Min-neapolis are important to the Minneapolis-Saint Paul region, and to Minnesota. In 2012, nearly

    28 million visitors spent $6.88 billion in the region. Visitors spend an average of $79 per day

    of their visit, and an average over $185 per trip, excluding transportation costs. Nicollet Mall

    reconstruction will strengthen the regions attractiveness for convention business, which could

    translate to increased visitors over time. Such increases translate into elevated spending levels,

    and additional collections of Minnesotas sales tax as well as local food, liquor and hotel sales

    taxes. In 2010, business and visitor activity in the Nicollet Mall area generated $13.8 million

    in city sales tax receipts, which are levied as 0.5% of sales. Citywide, local sales tax receipts

    increased over 20% between 2004 and 2012, exceeding $32.5 million. The Nicollet Mall area

    comprises a concentration of economic activity, helping drive the $485.5 million in Minnesota

    sales taxes collected in 2011. The effects of increased visitorship, it should be noted, will unfold

    over a longer time horizon than spending, development and tax base benefits also outlined in

    this report. The longer time frame is due primarily to the extended planning schedule required

    for convention business and time required for information about the experience to spread.

    Sustaining current trends. Reconstruction of prominent public space on Nicollet will reinforce private redevelopment already underway. Such investments concentrate property value and

    downtown residents, boosting state and local property and sales tax receipts. These trends are

    exemplified by new construction of the Nic on Fifth, a 26-story, 253-unit apartment tower with

    a reported construction budget of $76 million. Anticipated development on the majority of the

    Ritz Block at Nicollet and 4th Street offers another example of new investment focused on the

    Nicollet Mall spine.

    ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION 5

  • Extending market certainty about downtown. The Nicollet reconstruction project also demonstrates an ongoing public commitment to the prominent landmark and property on the

    blocks it connects between Washington Avenue and Grant Street. Implementation of a plan for

    reconstruction adds certainty to decision making by individuals and organizations choosing to

    live, locate or expand downtown or in alternative locations. Development projects anticipated

    to move forward in the coming 24-36 months, sited on blocks facing Nicollet, represent an

    estimated $185 million, including $145 million in publicized pre-development phase. An

    additional $168 million in development is projected for those areas one block distant from

    Nicollet Mall, including $112 million in a pre-development phase and expected in the market in the

    next 24-36 months. Projects representing $35 million more are in semi-public discussion, but

    not yet in pre-development. Office development currently underway and projected for the near

    term, will provide office space estimated to add over 1,900 employees to downtowns job center.

    Generating appreciation in property values. Studies demonstrate that improving street designs for pedestrians can produce market premiums

    witnessed in higher lease rates and higher market values for nearby

    property. Evaluations of comparable redesign efforts within commercial

    districts point to lease rate and property value increases up to 5%, and

    retail receipt increases up to 10%. For the purposes of this analysis, only

    blocks facing Nicollet Mall or immediately adjacent have been considered,

    as rendered in darker and lighter blue in the graphic. This analysis fore-

    casts modest appreciation attributable to the Nicollet Mall reconstruction

    of 1.0% for Nicollet-facing blocks, and 0.50% for adjacent blocks. At

    this level of appreciation, property located within the blocks in the study

    area is forecasted to grow in value by $57 million or more as a result of

    Nicollet Mall reconstruction.

    Compounding market value and property tax capacity. Downtown Minneapolis is well served by public utilities and transportation infrastructure, which elevate potential for continued

    development. Residential and office growth near Nicollet Mall provides long-term tax capacity

    for state and local property tax levies. Under Minnesota law, property taxes are levied on

    residential and commercial property downtown by the City of Minneapolis, Hennepin County,

    Minneapolis Public Schools, and multiple special districts. In addition, the State of Minnesota

    collects a property tax on commercial property, including office and retail.

    Tax base created by the development trends described above, and the appreciation attributable

    to the Nicollet Mall reconstruction project, are estimated to generate additional annual property

    tax revenues at todays tax rates:

    6 ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

    $5,020,000 $3,445,000 $1,795,000 $680,000 $10,940,000 $2,170,000

    City County School District Special Districts Total: Local Governments

    State ofMinnesota

    Projected Annual Property Tax Revenues

  • CONCLUSIONPublic and private parties are considering substantial investment in a $50 million reconstruc-

    tion of Nicollet Mall, providing a new design and program for the 45-year-old transit mall. The

    economic dynamics analyzed during this study include market momentum already occurring in

    the project area, benefits of the reconstruction spending, and forecasted property appreciation

    resulting from the improvements. These individual measures are summarized below:

    Images: Minnesota Historical Society; Megan Dobratz; James Corner Field Operations

    ###

    ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION 7

    Direct, indirect and induced spending resulting from reconstruction $105.5 million

    Statewide employment generated by project 860 FTEs*

    Development currently underway on or adjacent to Nicollet Mall $76 million

    Development anticipated in 24-36 months, on blocks facing Nicollet Mall $185 million

    Development anticipated in 24-36 months, in areas one block distant $168 million

    Estimated employees added in converted and new office space 1,900

    Estimated appreciation of existing property resulting from reconstruction $57 million

    Estimated annual property tax revenue, collected by local governments $10.9 million

    Estimated annual property tax revenue, collected by State of Minnesota $2.1 million

    * A full-time equivalent of FTE represents hours equal to a full time position for a year.

    Metric Finding

  • METHODOLOGYInitial Economic Impact: SpendingWhile the exact effect of such a construction project can never be measured with complete

    accuracy even after completion, the best estimate of its overall impact can be obtained using

    a standard multiplier analysis. For this analysis, multipliers from the Regional Input-Output

    Modeling System (RIMS II) of the Bureau of Economic Analysis of the U.S. Department of

    commerce were used. The RIMS II system uses a sophisticated model of the interaction of

    different sectors of the economy to trace through what the spending of a dollar in one sector

    will generate in other sectors.

    Analysts partition the different impacts of additional spending in a given sector into three

    categories:

    Direct spending is just the actual dollars spent on the product or project whose impact is being analyzed.

    Indirect spending includes the second round of spending by companies and individuals that provide materials and services to the project.

    Induced spending includes all of the additional economic activity generated in subse-quent rounds of spending as the direct and indirect dollars are cycled and recycled

    through the economy.

    The RIMS II multipliers summarize the total effect of all three types of spending generated by

    direct spending in a particular economic sector in a given geographic region. The system

    includes multipliers that are customized for any particular region to take account of the

    presence (or absence) of different goods and services in that region. For example, if a

    construction project uses many tons of concrete but it is located in a region where no concrete

    is produced, the system assumes that the concrete will be imported from elsewhere. Thus, the

    multiplier for that region will be less, reflecting smaller indirect and induced effects. So the

    effects of spending of a given type can be different depending on the geographic area

    included in the analysis.

    In order to estimate the full impact of the Nicollet mall reconstruction, multipliers for the entire

    state of Minnesota were used. While it is true that the majority of the impact will be felt in the

    Twin Cities metropolitan area, services and materials will undoubtedly be drawn for a wider

    area. In addition, the $50 million of overall spending was broken up into hard costs (labor,

    equipment, and materials) and soft costs (design, engineering, legal, consulting, and other

    services). Different multipliers were applied to these two categories of cost reflecting the fact

    that these dollars cycle through the regional economy differently.

    ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

  • As Table 1 below shows, the estimated impact of this project is $105.5 million. That total

    includes $75.5 million of impact generated by the hard costs and $30.0 million in estimated

    impact from the soft costs.

    TABLE 1Economic Impact of the Nicollet Mall Reconstruction

    Inside the State of Minnesota

    Source: U.S. Department of Commerce RIMS II system and Donjek estimates

    A project like the Nicollet Mall reconstruction generates jobs both in the construction sector

    and also through the impact of the indirect and induced spending described above. The RIMS

    II system also includes multipliers which capture the estimated regional employment effects of

    spending in different sectors.

    As Table 2 below indicates, the reconstruction project is estimated to produce a total of 864

    in Minnesota, measured as full-time equivalent for one year. This total includes an estimated

    626 jobs generated by the construction activity and 238 jobs generated by the soft costs of the

    project.

    TABLE 2Employment Impact of the Nicollet Mall Reconstruction

    Inside the State of Minnesota

    Source: U.S. Department of Commerce RIMS II system and Donjek estimates

    ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

    $35.0 million 2.1572 $75.5 million

    Category of Spending Direct Spending Impact Multiplier ($ per $)

    Total Impact

    Construction (labor, equipment, and materials)

    $15.0 million 1.9976 $30.0 millionSoft Costs

    $50.0 million $105.5 millionTotals

    $35.0 million 17.8845 626

    Category of Spending Direct Spending EmploymentMultiplier (jobs per $1 million)

    Total Employment Impact (FTEs)

    Construction (labor, equipment, and materials)

    $15.0 million 15.8941 238Soft Costs

    $50.0 million 864Totals